New residency test in 2012

The government of the United Kingdom is set to bring in a definitive residence test for tax payers from the next tax year.

Chancellor George Osborne claims the change is part of a plan to simplify the current, complex, tax rules for non-domiciles and expatriates.

The current rules that determine tax residence have long been touted as unclear and complex. The view is that a statutory definition of residence will provide greater certainty for taxpayers. The test will establish what makes a person a UK resident or non-resident for tax purposes.

Rules covering residency status were previously laid out in HM Revenue & Customs guidebook HMRC6. But the rules on residency status were thrown into further confusion in a 2010 court case involving Robert Gains Cooper, a British expat who lived abroad but still had a house in the UK that was eventually deemed to be his main residence.

Greg Limb from KPMG told Expat Forum: “The announcement that the Government intends to introduce a statutory residence test from 06 April 2012 is welcome news following the uncertainty of the present position.“ However he also added that if big changes aren’t made the whole process could be futile: “At the moment the situation regarding residence is complex and if the statutory test simply rehearses the issues highlighted in recent cases such as Gaines Cooper, taxpayers and visitors to the UK will still be unclear about their residence status. This could deter visitors and entrepreneurs from coming to the UK and may have an impact on competitiveness.”